Single Best Strategy for Investors to Maximize their Profits
Point Roberts, South Salem, New York –November 21, 2011 www.Investorideas.com, a leader in renewable energy stock research for independent investors, issues a solar stocks update and market commentary from J. Peter Lynch
Read Solar Stocks Commentary with J Peter Lynch at Investorideas.com
J. Peter Lynch
The market continues its high daily volatility and the bad news continues out of Europe. This is indeed a very nerve racking time for investors in the market – unfortunately I do not think there is any way to determine when this volatility will end. My recommendation is NOT to make any new commitments to the market at this time until the situation starts to resolve itself and the picture is clearer.
On October 24 2011 we initiated our “Bottom Fishers Solar Portfolio” we were up at 17% at the end of 5 days of trading. This is obviously an unsustainable gain and as a trader you have to take some money off the table when you get this lucky.
Here is a summary of what we did with the portfolio and the KEY lesson to be taken away from this.
- On 10/31 we sold our entire holding of WFR – 826 shares at $5.99 for a small loss. The stock broke down while the market and other solar stocks were rising and we were compelled to sell out the entire position since it violated our technical rules.
- One November 7th we sold HALF of our positions in our remaining 4 stocks – JASO, JKS, SOL, and YGE because the market was showing weakness and all 4 of the stocks gave short term sell signals since we were treating this as a trading opportunity we followed our system to the letter.
- On November 9th we sold out the remaining HALF of our positions in the 4 stocks – JASO, JKS, SOL and YGE. They all broke down further and violated our short term trading rules.
We were then out of all 5 of our stocks we had a very small gain of 1.04%. This may seem like a lot of work for such a small profit….and in this case that is a correct observation. But more importantly it gave us a very valuable opportunity, to once again have “the single best strategy for investors” (in my opinion) demonstrate its value to us – clearly and as usual correctly.
Below is a comparison of the returns when we “strictly” followed our trading rules (meaning trading with ZERO emotion) and the paper loss (23.8%) we would have incurred as of the close on Friday if we had held the stocks.
Comparison of Average Portfolio Sale Prices with Closing Prices Friday 11-18-2011
|Stock||Average Sale Prices||11-18-11 Closing Prices||Decline since Sale|
|WFR ||$5.99 ||$4.35 ||-27%|
|JASO ||$2.19 ||$1.57 ||-28%|
|JKS ||$8.63 ||$5.83 ||-32%|
|SOL ||$2.13 ||$1.68 ||-21%|
|YGE ||$3.93 ||$3.48 ||-11%|
| ||Average Loss Since Sale||-23.80%|
| ||Actual Portfolio Gain||1.04%|
The fact that we made a very small profit is certainly a positive thing for any investor but it is NOT the key point – the really important point is that this is a very clear demonstration of the most important technique for investors to utilize to maximize the appreciation of their portfolio:
Cut your losses and let your profits run
As anyone who has read prior columns know I have quoted Warren Buffet's two rules for investing many times:
- Never lose money, and
- Never forget rule #1
I believe another way of saying this is: Cut your losses and let your profits run.....
I cannot over emphasize this point enough it is, in my opinion, the #1 Key to investment success.
Investors in general (including me) have a tendency to hold on to their losing stocks and to sell their winners too soon. I have no idea why we do this, but if you think about I think you will find it to be true most of the time.
Remember earlier this year (2011) we started out with a solar portfolio and as the year progressed we sold off various positions as they violated our technical rules. After the last two positions were sold (GTAT and JKS) the portfolio was UP 16.52% year to date. Keep in mind that at that time the rest of the solar industry stocks were DOWN significantly year to date as were all the major market indexes - this is significant out performance.
If you look a little closer you will see that the only loss we had was the stock we sold first (cut our losses when the stock went against us). The other positions in the portfolio had small to medium gains but the largest gains by far was from GTAT and JKS which accounted for 71% of our total gain. How did that happen? We did NOT sell our best stocks and we let then run until our system told us to sell.
When you utilize this strategy you will find that most if not ALL of your losses will be small loses. Most of your gains will be small to medium gains and a small percentage of your gains will be substantial gains – these are the stocks that you left alone and let they make you as much money as they could until they violated your rules and you were forced to sell them. These are the stocks, like GTAT and JKS, in our portfolio that accounted for a disproportionate 71% of our gains.
It may not "sound" glamorous, but in the end it will result in far greater gains for your portfolio and more than likely excellent growth over the years. Remember ……………….
Cut your losses and let your profits run .....
Keep in mind that there are two basic types of equity (stock) analysis. Below are a brief description of each and its primary purpose:
Fundamental Analysis - this is the analysis of the fundamental financial condition of a company to identify which stocks you may want to buy when the timing is right. This form of analysis will give you NO indication of the best time to buy a stock or sell a stock.
Technical Analysis - this form of analysis will tell you "when" to buy a stock and when to sell the stock. It will do this by showing you (in chart format) the basic interaction of supply and demand and when the two change and shift which will indicate a time to buy or a time to sell.
Mr. Lynch has worked, for 34 years as a Wall Street security analyst, an independent security analyst an investment banker and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and advisor to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy - www.sunseries.net
Disclaimer: The views and opinions expressed in the research published are those of the individual companies and writers and not necessarily those of Investorideas.com® or any of the industry sector portals. At the time of publication, writers may hold positions in the stocks or companies mentioned.
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